After five years of negotiations, the European Union signed its largest trade deal ever with Japan on July 17. The deal brings some of the world’s strongest economies even closer, as the European Union and Japan together account for roughly one-quarter of the world’s GDP – making this the EU’s biggest trade deal ever. Japan is the EU’s second-largest trading partner in Asia, after China.
This is an economic win for both industrial heavyweights, especially as US tariffs on steel and aluminum started hitting European manufacturers hard starting last month. While the EU was granted a temporary tariff exemption, which expired in June, Japan has been facing the same hefty US tariffs since March. The US is also poised to begin putting tariffs on imported vehicles, a move that would hurt many EU economies and the Japanese automotive market.
However, it seems that as one trading has door closed – however temporary – another has opened for both nations. Negotiations for the EU-Japan trade deal, formally called the Economic Partnership Agreement, got underway in April 2013 but made little progress until last year. In January of 2017, the European Commission President Jean Claude Juncker received a phone call from the Japanese prime minister’s adviser asking to resume and accelerate trade talks. The agreement was announced in Brussels last July, and negotiations were finalised this April. After last week’s signing, all that is left is the final vote by the European Parliament in the fall. If all goes well, the agreement will become active early next year.
So what will the deal actually do? Most importantly, it will cut customs duties on products like European wine and cheese, while gradually lowering tariffs on cars. Europe will drop its 10 percent tariff on cars over seven years and slash duties on motor components even more quickly. In return, the EU managed to procure preferential agricultural terms, including an increase in the amount of meat that European beef producers can send to Japan (50,500 tons per year) with reduced tariffs on beef from 38.5 percent to nine percent over 15 years. Duties on pork, the EU’s biggest export to Japan, will also be phased out over 10 years. Duties on wine, the second most important export, will be eliminated as soon as the deal comes into force.
The agreement is expected to remove one billion euros in tariffs that European companies pay per year and lead to a trade increase of 16 to 24 percent, according to estimates from the European Commission. European producers of food products and Japanese carmakers will be the biggest winners.
But Japan is not the only country the EU is courting in its recent wave of free trade negotiations. As China is on track to surpass the US as Europe’s largest trading partner in the coming years, the EU is currently in negotiations with China. Already in 2013, the EU and China launched talks for an Investment Agreement to provide investors on both sides with predictable and long-term access to European and Chinese markets and to protect investors and their investments.
Negotiations are also underway between the EU and Australia, Chile, Indonesia, New Zealand, Tunisia, and the Mercosur countries – Argentina, Brazil, Paraguay, and Uruguay. The EU and India have restarted talks that stalled in 2013. Agreements with Vietnam and Singapore are in the final stages of approval. Mexico and the EU reached a deal in principle that will update an existing free trade agreement and should be completed by the end of the year. And as the US was announcing it wanted to renegotiate the North American Free Trade Agreement (NAFTA) shortly after President Donald Trump took office, the EU was finishing up a free trade pact with Canada which took effect late last year.
And yet, as Europe engages in numerous free trade deals with more countries and regions, America still remains the EU’s largest trade partner – at least for now. If the EU succeeds in negotiating and finalising all of its recent trade deals, they will add up to just about one-third of the American market, according to Holger Schmieding, chief economist at the Hamburg-based bank Berenberg. Which means, while expanding trade relations is important to the bloc, salvaging trade ties with its biggest partner is also paramount.
